Software makes inroads in scrap industry

A recent front-page article in the Wall Street Journal pointed out that automation is driving the continuing gains in productivity for global steel producers. The article described the efforts under way at ArcelorMittal SAs Burns Harbor, Ind., mill to benchmark itself against one of the Luxembourg-based companys most productive mills in Belgium, noting that Burns Harbor is catching up to the Belgian mill through automation, computerization and roboticization.

The accelerating trend toward computerization and automation in its many forms is helping Burns Harbor and other U.S. mills to become far more efficient. In the past 40 years, for example, U.S. mills have seen man-hours per ton of steel produced drop to two hours from 12 hours.

Big mills use computers for everything, from specifying the proper mix of metals and chemicals to go into the furnace to forecasting business demand six months in the future.

Information technology (IT) has been making inroads in the metals sector for years, but as in most industries the larger mills and plants are frequently more advanced than smaller facilities. Big mills, for example, can afford to hire the graduates with computer and engineering degrees to run complex hardware and software. The metals sector, like most industries, is paying a premium for a work force with brains and not just brawn.

The ferrous and nonferrous scrap industry generally lags most of the large mill customers in computer and IT sophistication. But even small, family owned businesses have come a long way over the past 15 years in how they use computers. The days of dealers and brokers not even having an e-mail address are pretty much over, although most scrap offices still boast at least one fax machine to submit and take orders.

But as domestic mills experiment with software programs that design optimum recipes for the best heat in an electric-arc furnace (EF), scrap dealers and brokers are going to have systems in place that are integrated with their customers software. When the EF melt shop team can plug in grades, prices, chemistries and ferrous yields to determine the best heat, scrap suppliers are simply going to have to keep technologically up to date to remain competitive.

It allows the mills to do the least-cost heat if they use a particular recipe, said one Pennsylvania broker who has had experience with melt shop software on the mill side of the business. You can get the average cost per ton at the end of a particular heat, and thats pretty helpful.

Azcon Corp. is typical of many scrap companies when it comes to computerization. The company, which has seven plants and trading offices at five locations in Illinois, Minnesota and Pennsylvania, has been using software for a number of business forecasting tasks during the past 10 years, including keeping track of rolling levels of inventory, budgets, price tracking, sales positions, freight charges and the like. We do it for almost every part of the business, said Ronnie Hirsch, president of Azcons Midwest division. We do it for all of our offices. Theres not a whole lot you cant do.

Azcon continually generates charts and graphs, particularly to illustrate projections for scrap inventory and pricing. When you broker scrap, sometimes you dont have all the information. And in this business, what you think you know that you dont know can come back to hurt you, Hirsch said.

Azcon uses software to fine tune reporting, particularly in the area of credit limits since the economic collapse in fall 2008. Weve got most of the tools we needbut then again, we thought we had most of the tools we needed eight or 10 years ago, Hirsch said.

Azcon, like many similar businesses, is taking IT to a new level of mobility. Although the Chicago-based company isnt yet storing gigabytes of information out on the cloud, Hirsch and other executives carry an iPad to keep them in touch with the latest business forecasting and reporting.

Azcon is one of the many clients of Shared Logic Group Inc., a Holland, Ohio-based software provider that specializes in management and accounting software for metal recyclers. Perry Jacobs, executive vice president of the suburban Toledo company, said its likely that Azcon and other similar-sized recyclers will be out on the cloud sooner rather than later. We have customers who already put information on the cloud, he said. I think weve got about a dozen or so. We put them in contact with servers.

Shared Logic started out in the early 1980s as a business consulting firm whose first client was a scrap metal broker. The consulting firm subsequently split, and one of the parts became Shared Logic, which catered to the original scrap metal client and began writing software for other scrap metal operations, most of which were family businesses or smaller, privately held corporations.

Theres nothing in the software we thought up, Jacobs said. Everything we do, our customers originally asked for. Our current software has been in place for 15 years. The software is relatively simple. It allows the user to chart trends over a year or less by customer or commodity or both. There typically are columns for the month, grade, weight, price, freight and the like, and the customer can easily use the software to budget for sales or purchase forecasting. The software takes Excel or handwritten reports, Jacobs said, and it is based off actual daily transactions. The user can easily see the trends. Its a pretty decent analysis.

One large family owned recycling company in the Midwest that uses Shared Logic software has dubbed the final product the boss report, Jacobs said. When they started with us, they had spreadsheets. I said, Show me what you do offline. Show me what the boss wants. I just make it fit into the applications. I spent a lot of my early career doing just that.

Jacobs said that most of the analytical reports prepared using Shared Logic software are 12-month, side-by-side comparisons. Most customers simply want to see the ferrous details, and at last count Shared Logic had more than 300 users. To us, its a commodity code, he said. Its five pieces of information: the vendor, the commodity, the weight, the dollar amount and the date. With all the reports, its just the way they present the information and use it. Jacobs pointed out that the five pieces of information allow scrap companies to answer five very important questions that are critical to the success of the business: Who did I buy from? What did I buy? What date did I buy it? How much did it weigh? What did I pay for it? Those create analytical tools at any and all levels.

Shared Logic has branched out over the years into every nook and cranny of the recycling sector, including ferrous, nonferrous, paper and e-waste, Jacobs said. We even had one customer who recycled candles.

Jacobs sees an increasing number of his customers getting more and more technologically savvy as the technology becomes more sophisticated. We are seeing more and more customers using iPads, iPhones and tablets to enter and acquire information, he said. Were getting into a web-based approach to buying and selling scrap. Some scrap companies are even borrowing techniques from the retail sector in their attempt to become more technologically advanced. Shared Logic has one customer who wants it to write code that will allow the companys customers to access their accounts online, the same way they would access their bank account online.

In the scrap recycling business, the foundation for using IT as a forecasting tool begins at the scale. Everything is automated, from weighing inbound scrap to paying the driver, said one scrap dealer with several locations in the Mid-Atlantic states.

The scrap dealers inspectors at several yards use hand-held technology, much like that used in the rental car industry, to check trucks in over the scale; some of the dealers locations have touch screens that perform the same duties. Once the load is weighed, a laser printer outputs a receipt and a copy; the dealer retains one copy for its files and the driver receives a copy. If the driver is receiving a check, he takes the receipt to the office for payment; if he is receiving cash, he takes the bar-coded receipt to an ATM on the dealers property that dispenses the correct amount of cash.

From our feeder yards, we have access real time to all of that information any time of the day or night, the dealer said. We can see how much weve purchased, how much scrap was weighed. The system also allows the dealer to see at any time how much scrap any customer has brought into the yards for a specified period up to five years. I can get that information in less than one minute for the individual facilities, for a group of facilities or for a group of customers, he said.

The dealer also employs software that automates shipping from his yards to mill customers. It automatically tracks shipped tons and open tons for specific customers and prints bills of lading, he said. We have a fair amount of versatility available to us in software we purchase from vendors or from proprietary software that we use.

One factor that limits the spread of IT for business applications in the scrap recycling business is cost. Smaller dealers are hesitant to spend tens of thousands of dollars to purchase and integrate a software platform.

One Pacific Northwest dealer said his family had looked at converting to a software package but had been deterred by the cost. On one of these programs, youre looking at $50,000 to $100,000 to install it and then so much a month to maintain it, he said. We handle maybe 3,000 tons per month, so how can we justify it on that tonnage? But if youre handling 30,000 tons per month, youd better have that kind of system. For the amount we do in the scrap division, we could do it by hand. You have to recognize the cost factor.

The Pacific Northwest dealer is typical of many in the scrap recycling industry who lament the loss of personal contact that has accompanied computerization. The dealer grew up in an industry where business was conducted over the telephone and through a handshake. I find it very convenient to do all my personal correspondence by e-mail, and I even negotiate contracts over the computer, he said. But I feel like we have lost that personal touch.

For the scrap recycling industry, the holy grail of IT is a software program that will tell a dealer what the price of a particular grade will be next month, in three months or in a year. But thats not likely to be developed anytime soon, according to industry observers. Scrap pricing is still much more of an art than a science, one dealer said.

If you put trash in, you get trash out, another dealer said, defining the problem. Everything depends on putting good information into the system.

As software and remote sensing systems become more sophisticated, the information going into the system will undoubtedly get better and better, allowing the scrap recycling industry to get a more complete understanding of how they do business and how their cost of doing business affects the bottom line.

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